Tick Marks

Primarily a weblog about accounting and related topics (such as taxation and personal finance). Other topics, such as politics and sports, likely will come up from time to time.

Sunday, March 24, 2013

"Where No Tax Rate Has Gone Before..."

NOTE: I have had problems posting the link (grrr to blogger). The story is from The Hill (thehill.com) on Sunday morning, March 24.

The IRS recently acknowledged that two training videos which it prepared in 2010; parodies of "Star Trek" and "Gilligan's Island," were not a good use of $60,000 and that it would be more careful in use of tax dollars going forward. Republican Charles Boustany (LA) blasted the videos as a waste of money. One consolation for the IRS--Congress did see some training value in the "Gilligan" video; allowing the video to be shown to taxpayer assistance representatives.

I am curious as to who approved the videos--though as government grants go; $60,000 is far from the biggest waste I have ever seen; especially since one of the videos actually worked. Nevertheless, it was good to see that the IRS has "sobered up" in the meantime.

Saturday, March 16, 2013

Wrapping Up

Looking back at the last four months or so, my posting has been erratic and I do not see major changes in the near future. I do plan to post sporadically until about June 30--after then, Tick Marks PROBABLY will close down. Thanks to everyone who has read this blog over the last eight years or so and especially to fellow bloggers who have linked to this blog. I probably will comment from time to time on other accounting and tax blogs.

Monday, February 25, 2013

Another Tax Season, Another Warning: Watch Out for "IRS e-mail" Scams

The IRS sent another warning to taxpayers to watch out for fraudulent e-mails and social media posts attempting to get credit card numbers or other personal information. The IRS points out that it does not initiate taxpayer contacts by e-mail or social media; using the U.S. Postal Service to notify taxpayers. Specific warnings: do not reply to suspicious messages, open attachments or click on e-mail links. A specific example of the sort of tricks which the IRS warned about: use of fraudulent but tricky websites such as irs.com or irs.org. Remember that the IRS website ends in .gov.

Taxes are a stressful event for millions of Americans every year and the appearance of what appears to be offical IRS correspondence is particularly scary. Nevertheless, if you are not SURE that the correspondence comes from the IRS; either contact your professional tax preparer or the IRS (toll free at 1-800-829-1040) before acting.

PCAOB Audits Audit Reports

A recently published PCAOB report on smaller members (firms with less than 100 publicly traded
audit clients) found that the significant error was down in 2011 from the middle of the previous decade; but only marginally down from more recent years. Specifically, 44% of audit firms had at least one significant audit deficiency (hereafter SAD) during the 2007-2010 period (hereafter 07-10 period) vs. 61% with a SAD during 2004-2006 (or the 04-06 period). Additionally, 28% of audits had SADs in 07-10 period vs. 36% in the 04-06 period and on second round audits 36% had SADs in the 07-10 period vs. 55% in the 04-06 period. While the reduced rate was encouraging, the presence of SADs in over a quarter of audits was unsettling according to PCAOB member Jeanette Franzel. Additionally, 20 firms with SADs had not submitted a remediation plan to the PCAOB.

With the wide disparity of firm sizes (one wonders how the smallest firms cited could even qualify to audit an SEC client) it is somewhat difficult to know whether to be encouraged or discouraged by these results. One exception--the number of firms avoiding the remediation plan is clearly too high.

Wednesday, February 06, 2013

The Second Hundred Years of The Federal Individual Income Tax

Numerous commentators have noted the 100th anniversary of the Sixteenth Amendment to the US Constitution and the imposition in 1913 of the individual income tax (Abraham Lincoln actually briefly used an income tax during the Civil War, but it was declared unconstitutional shortly after). As the second century of the Individual Income Tax starts (the Corporate Income Tax actually started four years earlier in 1909) consider the following:

--there are over 1000 sections to the Internal Revenue Code. This does not include regulations, court decisions or tax treaties

--an SELECTIVE volume of IRC and Regulations runs close to 2000 pages in length; no small amount of which is small print. Again, this excludes court decisions and tax treaties.

--Even with the discontinuation of the RTP program, there are three separate licensure programs for tax preparation: enrolled agent exam, CPA exam and bar exam.

-- During the upcoming year, we have the "fiscal cliff" tax changes and "Obamacare" tax regulations to implement--and President Obama has called for more changes as part of avoiding "sequestration."

--Individual income taxes rake in about double what was produced in the 1980s--and the country STILL has run a deficit of over $1 trillion for the past four years (although the CBO has projected slightly less than a $1,000,000,000,000,000 deficit for FY 2013).

Given the monumental appetite for US Government spending by the President and large numbers of Senators and Congressmen/Congresswomen; it is virtually impossible to develop a taxation system that would meet these needs fairly and effectively and my experiences with individual IRS agents have almost always been positive; in my opinion, the IRS is less of the problem than the people we elect. Nevertheless, for the second decade:

--Please simplify tax law. I realize that I have made blog posts have been inconsistent with this; but tax simplification ties up fewer person-hours, adds to the perception of horizontal equity and probably would improve tax compliance.

--Build up the not-for-profit sector, both secular and faith-based. One of the GOOD things that both President Bushes did was to encourage private charity. While, the not-for-profit sector cannot immediately replace governmental social and entitlement programs, they can be more flexible and often offer more actual compassion than a faceless check from the government.

--Re-evaluate what government can actually effective do. I do not doubt the good intentions of many of those who want the government more involved in the economy; instead I wonder why in the face of past results they expect actual solutions to occur. The US Government has spent trillions of dollars on anti-poverty programs over the last 50 years--is there any significant evidence that poverty has lessened?

Thursday, January 24, 2013

Will Tax Benefits Later Cost You Now?

Russell Holcombe, an Atlanta-based financial planner, identifies four investment vehicles with long-term investment potential which may have short-term shortcomings. His "yellow lighted" investments include: Roth IRA investments (federal exemption of Roth distributions may not apply at the state level); 401[k] plans (remember that tax penalties may apply if you need this money before 60); debt (remember the interest cost and the inflexibility of debt payments) and college plans such as 529 plans (taxes are saved to be sure--but money is tied up for about 20 years AND your child will need to qualify for and choose to attend a qualifying educational institution).

Like health savings plans and other shorter-time frame choices, Holcombe's valid point is that you LOOK not only at the tax savings, but the overall consequences of the investment. Do not go blindly into any investment.

Friday, January 18, 2013

Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee

Paul Mancinone, an attorney/CPA writing for Accounting Today, notes that the lateness of the "fiscal cliff" agreement puts taxpayers at additional risk of identity theft (he recommends that clients file as early as possible). One reason--the IRS is still putting together forms and schedules, thus many taxpayers may have trouble filing before the end of February. In addition to early filing, Mancinone has the following advice: be wary of preparers who want a percentage of the refund as well as those who refuse to sign a return; look for an attorney, CPA, EA or RTP to prepare the return and ask specifically how the preparer will protect personal information before hiring him/her/them to prepare the return.

While a rogue tax preparer/identity thief would be the most unsettling of possibilities; sloppy work by tax preparers can also cause a lot of grief for both preparers and clients. The advice of Mancinone may seem routine for tax professionals (and remember that tax credentials do not automatically equate to ethical behavior), but clearly many people have been hurt by NOT taking Mancinone's advice.

Friday, December 28, 2012

What Happened??

My apologies for being absent for eight weeks; a combination of a very busy finals period and some lack of motivation threw me off my game. I am going to have to look at how the blog is going to continue--clearly, I have to post more than every eight weeks to be a credible blogger. My present goal is limited blogging for the next two weeks, then 1-3 posts per week through tax season. After tax season, I will have to evaluate in earnest whether this blog will continue; and if so, whether it will focus as a general blog covering accounting, auditing and tax issues; whether it will go in a more focused accounting direction or whether the blog will become more of a mix of accounting and nonaccounting topics.

2013 Tax Season: If You Are a Preparer, Start Praying NOW

While the tax preparer community may had bigger changes in tax law than those coming in 2013 (1975, 1982, 1994, 2004 and especially 1987 come to mind); I cannot remember in 35+ years of having some association with taxes a year starting with more uncertainty and lack of clarity. The obvious issues are the impact of the Affordable Care Act/Obamacare; the fiscal cliff/sequestration and the likely end of Bush tax cuts for very high income taxpayers; however, the lack of an AMT patch/extenders for last decade's tax incentives, the possible end of the 2% cut on employee FICA rates and uncertainty about estate and gift taxes also exist. Only increased rates on "the wealthy" (and no firm agreement on where these higher rates start) are addressed in what appears to be the President's final position on the fiscal cliff. Since foreign affairs and the debt ceiling appear to be the highest priorities in the first few months of 2013; tax preparers face the likelihood of forms which may be outdated before being printed and retroactive adjustments to the Code during tax season. Expect many 12 hour days, chain chewing of antacids and what the Wandering Tax Pro calls GDEs (gosh dang extensions--or something like that) in quantity if you prepare taxes for your living.